This usually describes pre-patellar bursitis. This is when fluid builds up in the bursa sac that lies in front of and below the kneecap. The front of the knee may look like a goose egg.
There are also conditions when the knee joint itself fills with fluid. A joint capsule encloses the bones of the knee joint. When the capsule fills with fluid, it may give the appearance of "water on the knee." This can happen with problems like arthritis or infection.
An injury to the structures inside the knee can cause bleeding and swelling to fill the inside of the joint. In these instances, there will be fullness in the tissues of the knee, rather than simply a goose-egg appearance in the front of the knee.